1
                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington, DC 20549


                                   FORM 10 - K


[X]  Annual  Report  Pursuant  to  Section  13 or 15 (d) of the  Securities
     Exchange Act of 1934 for the fiscal year ended June 30, 2003

[ ]  Transition  Report  Pursuant  to Section 13 or 15 (d) of the  Securities
     Exchange Act of 1934.

     For  the transition period from to


                           Commission File No. 1-4383

                         Espey Mfg. & Electronics Corp.
            --------------------------------------------------------
             (Exact name of registrant as specified in its charter)



           New York                                    14-1387171
 -------------------------------------------------------------------------------
(State or other jurisdiction of                      (IRS Employer
 incorporation or organization)                    Identification No.)


               233 Ballston Avenue, Saratoga Springs, NY   12866
 -------------------------------------------------------------------------------
           (Address of principal executive offices including Zip Code)


        (Registrant's telephone number including area code) (518)245-4400


                                               Name of Each Exchange
     Title of Each class                        on Which Registered
     -------------------                       ---------------------
Common Stock $.33-1/3 par value                American Stock Exchange
Common Stock Purchase Rights                   American Stock Exchange

Securities registered pursuant to Section 12 (g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required
to the filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
         [X] Yes [ ] No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
         [X]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
         [ ] Yes [X] No

The aggregate market value of the voting stock held by non-affiliates of the
registrant was $20,505,314 as of August 29, 2003 based upon the closing sale
price of $20.30 on the American Stock Exchange on August 29, 2003.

The number of shares of common stock outstanding as of August 29, 2003 was
1,010,114.

                                       1

<PAGE>


                                     PART I

Item 1.      Business.

General

Espey Mfg. & Electronics Corp. (the "Company") is engaged principally in the
development, design, production and sale of specialized electronic power
supplies, a wide variety of transformers and other types of iron-core
components, and electronic system components. In some cases, the Company
manufactures such products in accordance with pre-developed mechanical and
electrical requirements ("build to print"). In other cases, the Company is
responsible for both the overall design and manufacture of the product. The
Company does not generally manufacture standardized components. The Company
operates a one-segment business and was incorporated in 1928.

The electronic power supplies and components manufactured by the Company find
application principally in (i) shipboard and land based radar, (ii) locomotives,
(iii) aircraft, (iv) short and medium range communication systems, (v)
navigation systems, (vi) land based military vehicles.

The Company's iron-core components include (i) transformers of the audio, power
and pulse types, (ii) magnetic amplifiers and (iii) audio filters. The
electronic system components manufactured by the Company include antenna systems
and high power radar transmitters. These system components utilize the Company's
own electronic power supplies, transformers and other iron-core components and
mechanical assemblies.

In the fiscal year ended June 30, 2003 (referred to herein as "2003"), the
Company's total sales were $19,773,411. Sales to two domestic customers and one
foreign customer accounted for 25%, 19% and 12% and 26%, 21%, and 14%, of total
sales in 2003 and 2002, respectively. Sales to two domestic customers accounted
for 40% and 20% respectively, of total sales in 2001.

Export sales in 2003, 2002 and 2001 were approximately $ 7,100,000, $6,600,000,
and $8,700,000, respectively. The Company has a foreign sales corporation.

Sources of Raw Materials

The Company has never experienced any significant delay or shortage with respect
to the purchase of raw materials and components used in the manufacture of its
products, and has at least two potential sources of supply for a majority of its
raw materials. However, certain components used in our products are available
from only a limited number of sources, and other components are only available
from a single source. Despite the risk associated with limited or single source
suppliers, the benefits of higher quality goods and timely delivery minimize and
often limit any potential risk and can eliminate problems with part failures
during production.

Sales Backlog

At August 29, 2003, the Company's backlog was approximately $23.1 million. The
total backlog at June 30, 2003 was approximately $21.4 million as compared to
approximately $24.6 million at June 30, 2002. The Company's backlog is discussed
in greater detail in Management's Discussion and Analysis of Financial Condition
and Results of Operations, contained in Item 7 below.

It is presently anticipated that a minimum of $19 million of orders comprising
the June 30, 2003 backlog will be filled during the fiscal year ending June 30,
2004. The minimum of $19 million does not include any shipments, which may be
made against orders subsequently received during the fiscal year ending June 30,
2004. The estimate of the June 30, 2003 backlog to be shipped in fiscal 2004 is
subject to future events, which may cause the amount of the backlog actually
shipped to differ from such estimate.

Marketing and Competition

The Company markets its products primarily through its own direct sales
organization. Business is solicited from large industrial manufacturers and
defense companies, United States and foreign governments and major foreign
electronic equipment companies. In certain countries the Company has external
sales representatives to help solicit and coordinate foreign contracts. The
Company is also on the eligible list of contractors of many agencies of the
Department of Defense and generally is automatically solicited by such agencies
for procurement needs falling within the major classes of products produced by
the Company. In addition, the Company directly solicits bids from both the
Department of Defense and other United States Government agencies for prime
contracts.

                                       2

<PAGE>


There is competition in all classes of products manufactured by the Company,
from divisions of the largest electronic companies, as well as many small
companies. The Company's sales do not represent a significant share of the
industry's market for any class of its products. The principal methods of
competition for electronic products of both a military and industrial nature
include, among other factors, price, product performance, the experience of the
particular company and history of its dealings in such products. The Company, as
well as other companies engaged in supplying equipment for military use, is
subject to various risks, including, without limitation, dependence on U.S. and
foreign government appropriations and program allocations, the competition for
available military business, and government termination of orders for
convenience.

The Company's business is not considered to be of seasonal nature.

Research and Development

The Company's expenditures for research and development were approximately
$100,000, $335,000, and $249,000 in 2003, 2002 and 2001, respectively. Some of
the Company's engineers and technicians spend varying degrees of time on either
development of new products or improvement of existing products.

Employees

The number of persons employed by the Company as of August 29, 2003 was 192.
Some of these employees are represented by the International Brotherhood of
Electrical Workers Local #1799. The current collective bargaining agreement
expires on June 30, 2008. The contract includes a 3.75% pay increase in fiscal
2004 through 2007 and no increase for 2008. Relations with the Union are
considered good. Union membership at August 29, 2003 was 79 people.

Government Regulations

Compliance with federal, state and local provisions that have been enacted or
adopted to regulate the discharge of materials into the environment, or
otherwise relating to the protection of the environment, did not in 2003, and
the Company believes will not in fiscal year 2004 have a material effect upon
the capital expenditures, earnings, or competitive position of the Company.

Item 2.      Properties

The Company's manufacturing and engineering facilities are at its plant in
Saratoga Springs, New York.

The Saratoga Springs plant, which the Company owns, consists of various
adjoining one-story buildings. The plant has a sprinkler system throughout and
contains approximately 151,000 square feet of floor space, of which 90,000 is
used for manufacturing, 24,000 for engineering, 33,000 for shipping and
climatically secured storage, and 4,000 for offices. The offices, engineering
and some manufacturing areas are air-conditioned. In addition to assembly and
wiring operations, the plant includes facilities for varnishing, potting,
plating, impregnation and spray-painting operations. The manufacturing operation
also includes a complete machine shop, with welding and sheet metal fabrication
facilities adequate for substantially all of the Company's current operations.
Besides normal test equipment, the Company maintains a sophisticated on-site
environmental test facility. In addition to meeting all of the Company's
in-house needs, the plating, machine shop and environmental facilities are
available to other companies on a contract basis.

Item 3.      Legal Proceedings.

             None

Item 4.      Submission of Matters to a Vote of Security Holders.

             None

                                PART II

Item 5.      Market for the Registrant's Common Equity and Related Stockholder
             Matters.

                                       3

<PAGE>


Price Range of Common Stock

The table below shows the range of high and low prices for the Company's common
stock on the American Stock Exchange, the principal market for trading in the
common stock, for each quarterly period for the last two fiscal years ended June
30:

         2003                           High                Low
         First Quarter                  20.50              18.48
         Second Quarter                 19.75              18.65
         Third Quarter                  20.75              17.55
         Fourth Quarter                 18.49              17.70

         2002                           High                Low
         First Quarter                  18.98              17.40
         Second Quarter                 20.99              18.45
         Third Quarter                  20.49              19.50
         Fourth Quarter                 20.14              19.90


Holders

The approximate number of holders of record of the common stock was 146 on
August 29, 2003 according to records of the Company's transfer agent. Included
in this number are shares held in "nominee" or "street" name and, therefore, the
number of beneficial owners of the common stock is believed to be substantially
in excess of the foregoing number.

Dividends

The Company paid a cash dividend on the common stock of $.35, $.30, and $.20 per
share for the fiscal years ended June 30, 2003, 2002 and 2001, respectively. The
Board of Directors has authorized the payment of a fiscal 2004 first quarter
dividend of $.125 payable September 30, 2003. The board also declared a special
dividend of .50 per share payable on September 30, 2003.

                                       4

<PAGE>


Item 6. Selected Financial Data.

<TABLE>
<CAPTION>

                                                             ESPEY MFG. & ELECTRONICS CORP.
                                                             Five Years Ended June 30, 2002
                                          ----------------------------------------------------------------------
Selected Income Statement Data            2003             2002            2001             2000           1999
                                      ------------     ------------    ------------     ------------    -----------
<S>                                   <C>             <C>              <C>             <C>             <C>
Net Sales........................     $ 19,773,411    $ 18,405,213     $ 17,251,640    $ 14,719,818    $ 13,629,692
Operating Income.................        1,146,386         549,139        1,169,271         733,617         690,839
Other income ....................          139,880         179,615          305,833         459,326         441,762
                                      ------------    ------------     ------------    ------------    ------------
         Net income.............           964,700         545,754        1,033,069         782,943         730,601

Income per common share:
  basic and diluted..............     $        .94    $        .53    $       1.00    $        .75     $        .66
                                      ============    ============     ============    ============    ============

Selected Balance Sheet Data

Current Assets...................       26,528,434      25,008,710       23,736,991      22,540,316      22,091,114
Current Liabilities .............        1,841,989       1,278,520        1,063,497       1,329,171       1,274,126
Working Capital..................       24,686,445      23,730,190       22,673,494      21,211,145      20,816,988
Total Assets ....................       29,795,497      28,332,962       27,228,881      26,118,037      25,394,712

Stockholders' equity ............       27,953,508      27,054,442       26,165,384      24,788,866      24,120,586

Cash dividends declared and
  paid per common share..........     $        .35    $        .30    $        .20    $        .20     $        .20
                                      ============    ============     ============    ============    ============
</TABLE>


Item 7. Management's Discussion and Analysis of Financial Condition and Results
     of Operations

Results of Operations

Net Sales for fiscal years ended June 30, 2003, 2002 and 2001, were $19,773,411,
$18,405,213 and $17,251,640, respectively. The 7.4% increase in net sales in
2003 as compared to 2002, is the result of increased shipments of small
transformers, certain power supplies, and shipments made on build to print
orders. The Company continues to realize the benefits of increased business with
existing customers as well as establishing new customer relationships. These
relationships have provided for the continued increase in sales that has
occurred over the last five years. The sales backlog at June 30, 2003 was
approximately $21.4 million. The backlog includes significant orders for land
and shipboard high voltage radar power supply/transmitters, industrial power
supplies, and contracts to manufacture certain customer products in accordance
with pre-engineered requirements. The increase in net sales in 2002 as compared
to 2001 was the result of an increased sales order backlog. Significant
shipments in 2002 included high voltage radar power supply/transmitter
components and industrial power supplies.

Net income for fiscal 2003, was $964,700 or $.94 per share compared to $545,754
or $.53 per share for fiscal 2002. The increase in net income per share was due
to decreased expenditures made on engineering development contracts, higher
sales and favorable product mix. The decrease in engineering development
expenditures occurred naturally as the related programs moved from the
engineering design phase into the production phase of the associated contracts.
The increase in earnings was partially offset by an increase in selling, general
and administrative expenses. Net income for fiscal 2002, was $545,754 or $.53
per share compared to net income of $1,033,069 or $1.00 per share for fiscal
2001. The net income decrease in 2002 was due to increased expenditures made on
engineering development contracts. These contracts are for the development of
new technologies which, if successful, should significantly enhance the
Company's power supply product offerings and operating income in the future.

For fiscal years ended June 30, 2003, 2002 and 2001 gross profits were
$3,097,861, $2,300,994 and $3,061,730, respectively. The increase in gross
profit between 2003 and 2002 was predominately due to an increase in net sales
and favorable product mix. The decrease in gross profit between 2002 and 2001
was due to increased expenditures made on engineering development contracts as
discussed above.

Selling, general and administrative expenses were $ 1,951,475 for the fiscal
year ended June 30, 2003, an increase of $199,620, or 11.4% as compared to the
prior year.

                                       5

<PAGE>

This increase is mainly attributable to an increase in insurance premiums and
increased selling expenses. Selling, general and administrative expenses were
$1,751,855 for the year ended June 30, 2002, a decrease of $140,604, or 7.4% as
compared to the prior year. The decrease is primarily related to an overall
decrease in travel, freight and labor costs caused by a decrease of
approximately five full-time equivalent employees.

Total other income in fiscal 2003, as compared to 2002 declined as expected, as
the Company sold its higher interest bearing preferred securities, and interest
rates continued to decline. Total other income in fiscal 2002, as compared to
2001 declined as expected as interest rates were also lower in fiscal 2002.

Business Outlook

The Company continues to increase net sales while also maintaining a sizable
sales backlog. The sales backlog of $23.1 million as of August 29, 2003 gives
the Company a solid base to grow from. In addition to the backlog, the Company
currently has outstanding quotations in excess of $33 million for both repeat
and new programs. The Company has received major contracts for pre-engineered
hardware. The Company also expects to receive substantial orders for spare parts
on the various types of transmitters which are already in the field, a number of
contracts for further development and manufacture of numerous power supplies,
transformers and additional contracts for pre-engineered hardware.

The outstanding quotations encompass various new and previously manufactured
power supplies, transformers, and subassemblies. There can be no assurance that
the Company will acquire any or all of the proposed orders described above since
such a forward-looking statement is subject to future events, market conditions,
political stability of foreign governments, and allocations of the United States
defense budget.

Liquidity and Capital Resources

The Company's working capital is an appropriate indicator of the liquidity of
its business, and during the past three fiscal years, the Company, when
possible, has funded all of its operations with cash flows resulting from
operating activities and when necessary from its existing cash and investments.
The Company did not borrow any funds during the last three fiscal years.
Management has available a $3,000,000 uncommitted line of credit to help fund
further growth or working capital needs, if necessary, but does not anticipate
the need for any borrowed funds in the foreseeable future.

The Company's working capital as of June 30, 2003, 2002 and 2001 was
$24,686,445, $23,730,190 and $22,673,494, respectively. During 2003, 2002 and
2001 the Company repurchased 15,918, 0, and 4,170 shares, respectively, of its
common stock from the Company's Employee Retirement Plan and Trust ("ESOP") and
in other public transactions, for a total purchase price of $311,468, $0 and
$70,890, respectively. Under existing authorizations from the Company's Board of
Directors, as of August 29, 2003, management is authorized to purchase an
additional $814,895 of Company stock.

The table below presents the summary of cash flow information for the fiscal
year indicated:

                                                         2003            2002
                                                      -----------    -----------

Net cash provided by operating activities............ $ 1,936,468    $ 3,656,911
Net cash provided by investing activities............     523,370        576,916
Net cash used in financing activities ...............     656,317        241,601


Net cash provided by operating activities fluctuates between periods primarily
as a result of differences in net income, the timing of the collection of
accounts receivable, purchases of inventory, receipt of progress payments, level
of sales and payments of accounts payable. Net cash provided by investing
activities decreased in fiscal 2003 due to slightly higher additions of plant
equipment. The increase in cash used in financing activities is due primarily to
the increase in the amount of treasury stock purchased during 2003 as compared
to 2002.

The Company believes that the cash generated from operations and when necessary,
from existing cash and cash equivalents, will be sufficient to meet its
long-term funding requirements for the foreseeable future.

                                       6

<PAGE>


Management believes that the Company's reserve for bad debts of $3,000 is
adequate given the customers with whom the Company does business. Historically,
bad debt expense has been minimal.

During fiscal year 2003 and 2002, the Company expended approximately $438,000
and $394,000, respectively, for plant improvements and new equipment. The
Company has budgeted approximately $350,000 for new equipment and plant
improvements in fiscal 2004. Management presently anticipates that the funds
required will be available from current operations.

Critical Accounting Policies and Estimates

Our significant accounting policies are described in Note 2 to the consolidated
financial statements. We believe our most critical accounting policies include
revenue recognition and cost estimation on our contracts.

A significant portion of our business is comprised of development and production
contracts which are accounted for under the provisions of the American Institute
of Certified Public Accountants (AICPA) Statement of Position No. 81-1,
"Accounting for Performance of Construction-Type and Certain Production-Type
Contracts." Generally revenue on long-term fixed-price contracts are recorded on
a percentage of completion basis using units of delivery as the measurement
basis for progress toward completion.

Contract accounting requires judgment relative to estimating costs and making
assumptions related to technical issues and delivery schedule. Contract costs
include material, subcontract costs, labor and an allocation of indirect costs.
The estimation of cost at completion of a contract is subject to numerous
variables involving contract costs and estimates as to the length of time to
complete the contract. Given the significance of the estimation processes and
judgments described above, it is possible that materially different amounts of
contract costs could be recorded if different assumptions were used in the
estimation of cost at completion. When a change in contract value or estimated
cost is determined, changes are reflected in current period earnings.

Other Matters

An Employee Retirement Plan and Trust ("ESOP") was established for the eligible
non-union employees of the Company and was effective as of July 1, 1988. The
ESOP used the proceeds of a loan from the Company to purchase 316,224 shares of
the Company's common stock for approximately $8,400,000 and the Company
contributed approximately $400,000 to the ESOP, which was used by the ESOP to
purchase an additional 15,000 shares of the Company's common stock.

Each year the Company makes contributions to the ESOP, which are used to make
loan interest and principal payments. With each loan and interest payment, a
portion of the common stock is allocated to participating employees. As of June
30, 2003, there were 230,562 shares allocated to participants. Dividends
attributable to allocated shares were likewise allocated to the participants'
accounts, whereas the dividends on unallocated shares were used in part of the
loan repayment, thus reducing the Company's required contribution.

The loan from the Company to the ESOP is repayable in annual installments of
$1,039,605, including interest through June 30, 2004. Interest is payable at a
rate of 9% per annum. The Company's receivable from the ESOP is recorded as
common stock subscribed in the accompanying balance sheets.

                                       7

<PAGE>



CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995

It should be noted that in this Management's Discussion and Analysis of
Financial Condition and Results of Operations are "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended, and are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. The terms "believe," "anticipate," "intend," "goal,"
"expect," and similar expressions may identify forward-looking statements. These
forward-looking statements represent the Company's current expectations or
beliefs concerning future events. The matters covered by these statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially from those set forth in the forward-looking statements,
including the Company's dependence on timely development, introduction and
customer acceptance of new products, the impact of competition and price
erosion, as well as supply and manufacturing constraints and other risks and
uncertainties. The foregoing list should not be construed as exhaustive, and the
Company disclaims any obligation subsequently to revise any forward-looking
statements to reflect events or circumstances after the date of such statements
or to reflect the occurrence of anticipated or unanticipated events. The Company
wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made.




Item 8.      Financial Statements

Report of Independent Auditors

To the Board of Directors and Stockholders of
Espey Mfg. & Electronics Corp. and Subsidiary:

In our opinion, the consolidated financial statements listed in the index
appearing under Item 14 (a) (1) present fairly, in all material respects, the
financial position of Espey Mfg. & Electronics Corp. and Subsidiary at June 30,
2003 and 2002, and the results of their operations and their cash flows for each
of the three years in the period ended June 30, 2003 in conformity with
accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.


/s/PricewaterhouseCoopers LLP
-----------------------------
PricewaterhouseCoopers LLP
Albany, New York
August 1, 2003

                                       8


<PAGE>

<TABLE>
<CAPTION>


Espey Mfg. & Electronics Corp. and Subsidiary
Consolidated Balance Sheets
June 30, 2003 and 2002
-------------------------------------------------------------------------------------------------------------------
                                                                                       2003                 2002
                                                                                   ------------        ------------
<S>                                                                                <C>                 <C>
ASSETS
Current assets:
         Cash and cash equivalents.........................................        $ 10,996,483        $  9,192,962
         Investment securities.............................................                   -             368,000
                                                                                  -------------       -------------
                           Cash and cash equivalents
                           and investment securities.......................          10,996,483           9,560,962
                                                                                  -------------       -------------
         Trade accounts receivable, net...................................            3,470,895           2,409,706
         Other receivables ..........................................                    11,638              13,413
                                                                                  -------------       -------------
                           Total receivables...............................           3,482,533           2,423,119
                                                                                  -------------       -------------

         Inventories:
                  Raw materials and supplies...............................           1,570,028           1,424,278
                  Work in Process..........................................           3,020,081           4,298,988
                  Costs related to contracts in process,
                  net of progress payments of $3,314,816
                  in 2003 and $2,194,269 in 2002...........................           7,246,158           7,017,529
                                                                                  -------------       -------------
                           Total inventories...............................          11,836,267          12,740,795
                                                                                  -------------       -------------
         Deferred income taxes.............................................              88,643              85,773
         Prepaid expenses and other current assets.........................             124,508             198,061
                                                                                  -------------       -------------
                  Total current assets.....................................          26,528,434          25,008,710
                                                                                  -------------       -------------
Property plant and equipment, at cost......................................          11,608,679          11,175,248
Less accumulated depreciation..............................................          (8,341,616)         (7,850,996)
                                                                                  -------------       -------------
         Net property, plant and equipment.................................           3,267,063           3,324,252
                                                                                  -------------       -------------
                  Total Assets.............................................        $ 29,795,497        $ 28,332,962
                                                                                  =============       =============
</TABLE>

                                       9

<PAGE>
<TABLE>
<CAPTION>


LIABILITIES AND STOCKHOLDERS'EQUITY

<S>                                                                                <C>                 <C>
Current Liabilities:
         Accounts payable  ................................................        $    647,597        $    497,454
         Accrued expenses:
                  Salaries, wages and commissions..........................              88,287              86,881
                  Vacation ................................................             465,815             398,898
                  Employee insurance costs.................................               7,038               6,887
                  Other....................................................              42,361              41,410
         Payroll and other taxes withheld and accrued......................              38,425              37,943
         Income taxes payable..............................................             350,232              88,966
         Deferred income taxes.............................................             202,234             120,081
                                                                                  -------------        ------------
                           Total current liabilities.......................           1,841,989           1,278,520
                                                                                  -------------        ------------
Stockholders' equity
         Common stock, par value $.33-1/3 per share Authorized 10,000,000
              shares; Issued 1,514,937 shares in 2003 and 2002, outstanding
              1,019,643
              and 1,034,561 shares in 2003 and 2002........................             504,979             504,979
         Capital in excess of par value....................................          10,459,278          10,465,878
         Accumulated other comprehensive loss..............................                   -             (29,079)
         Retained Earnings ......................................                    25,458,400          24,848,858
                                                                                  -------------        ------------
                                                                                     36,422,657          35,790,636
         Less common stock subscribed......................................            (558,662)         (1,117,325)
         Cost of 495,294 and 480,376 shares of
              common stock in treasury in 2003
              and 2002, respectively.......................................          (7,910,487)         (7,618,869)
                                                                                  -------------        ------------
                           Total stockholders' equity......................          27,953,508          27,054,442
                                                                                  -------------        ------------
                           Total liabilities and
                           stockholders' equity............................        $ 29,795,497        $ 28,332,962
                                                                                  =============        ============
</TABLE>

The accompanying notes are an integral part of the consolidated financial
statements.

                                       10


<PAGE>

<TABLE>
<CAPTION>

Espey Mfg. & Electronics Corp. and Subsidiary
Consolidated Statements of Income
Years Ended June 30, 2003, 2002 and 2001
-------------------------------------------------------------------------------------------------------------------
                                                                   2003               2002                2001
                                                               ------------        ------------       -------------
<S>                                                             <C>                 <C>                 <C>
Net sales.................................................      $19,773,411         $18,405,213         $17,251,640
Cost of sales............................................        16,675,550          16,104,219          14,189,910
                                                               -----------         -----------          -----------
                  Gross profit............................        3,097,861           2,300,994           3,061,730

Selling, general and
     administrative expenses..............................        1,951,475           1,751,855           1,892,459
                                                               -----------         -----------          -----------
                  Operating income........................        1,146,386             549,139           1,169,271

Other income
                  Interest and dividend income............          140,000             199,050             271,935
                  Other income/loss.......................             (120)            (19,435)             33,898
                                                               -----------         -----------          -----------

                  Total other income......................          139,880             179,615             305,833
                                                               -----------         -----------          -----------
                  Income before income taxes..............        1,286,266             728,754           1,475,104

Provision for income taxes ...............................          321,566             183,000             442,035
                                                               -----------         -----------          -----------
                  Net income..............................      $   964,700         $   545,754         $ 1,033,069
                                                               ============        ============         ===========
Income per common share;
         Net income per common share -
                  basic and diluted ......................      $       .94         $       .53         $      1.00
                                                               ============        ============         ===========
         Weighted average outstanding shares:
                  Basic...................................        1,025,200           1,030,556           1,031,403
                                                               ============        ============         ===========
                  Diluted.................................        1,027,686           1,034,904           1,033,989
                                                               ============        ============         ===========
</TABLE>


The accompanying notes are an integral part of the consolidated financial
statements.

                                       11

<PAGE>

<TABLE>
<CAPTION>


Espey Mfg. & Electronics Corp. and Subsidiary
Consolidated Statements of Changes in Stockholders' Equity
Years Ended June 30, 2003, 2002 and 2001
-------------------------------------------------------------------------------------------------------------------
                                                                                         Accumulated
                                                                                            Other
                                                                         Capital in      Comprehen-
                                                          Common         Excess of      sive income     Retained
                                                           Stock          par Value        (Loss)        Earnings
                                                       -----------       -----------    -----------     -----------
<S>                                                        <C>            <C>              <C>           <C>
Balance as of June 30, 2000                                504,979       $10,496,287      $(107,221)    $23,775,433
                                                       -----------       -----------    -----------     -----------
Comprehensive income:
                  Net income, 2001                                                                        1,033,069
                  Other comprehensive income,
                    net of tax benefit of $30,660                                            56,941

Comprehensive income

Dividends paid on common stock
   $.20 per share                                                                                          (206,309)

Tax effect of dividends on
   unallocated ESOP shares                                                                                    5,043

Purchase of treasury stock

Reduction of common stock subscribed
                                                       -----------       -----------    -----------     -----------
Balance as of June 30, 2001                                504,979        10,496,287        (50,281)     24,607,239
                                                       -----------       -----------    -----------     -----------
Comprehensive income:
                  Net income, 2002                                                                          545,754
                  Other comprehensive income,
                    net of tax benefit of $9,940                                             21,202

Comprehensive income

Stock option exercises                                                       (30,409)

Dividends paid on common stock
   $.30 per share                                                                                          (309,176)

Tax effect of dividends on
   unallocated ESOP shares                                                                                    5,041

Purchase of treasury stock

Reduction of common stock subscribed
                                                       -----------       -----------    -----------     -----------
Balance as of June 30, 2002                                504,979        10,465,878        (29,079)     24,848,858
                                                       -----------       -----------    -----------     -----------
Comprehensive income:
                  Net income, 2003                                                                          964,700
                  Other comprehensive gain,
                    net of tax benefit of $15,599                                            19,589
                  Reclassification adjustment                                                 9,490

Comprehensive income

Stock option exercises                                                        (6,600)

Dividends paid on common stock
   $.35 per share                                                                                          (358,099)

Tax effect of dividends on
   unallocated ESOP shares                                                                                    2,941

Purchase of treasury stock

Reduction of common stock subscribed
                                                       -----------       -----------    ------------    -----------
Balance as of June 30, 2003                                504,979       $10,459,278    $        --     $25,458,400
                                                       ===========       ===========    ============    ===========
</TABLE>


                                       12

<PAGE>

<TABLE>
<CAPTION>


                                                         Common               Treasury Stock                Total
                                                         Stock          ---------------------------     Stockholders'
                                                       Subscribed         Shares           Amount          Equity
                                                       -----------       -----------    ------------    -----------

<S>                                                     <C>                  <C>         <C>            <C>
Balance as of June 30, 2000                             (2,234,650)          481,306     $(7,645,962)   $24,788,866
                                                        -----------        -----------   ------------   -----------

Comprehensive income:
                  Net income, 2001                                                                        1,033,069
                  Other comprehensive loss,
                    net of tax benefit of $30,660                                                            56,941
                                                                                                        -----------
Comprehensive income                                                                                      1,090,009

Dividends paid on common stock
   $.20 per share                                                                                          (206,309)

Tax effect of dividends on
   unallocated ESOP shares                                                                                    5,043

Purchase of treasury stock                                                   4,170           (70,890)       (70,890)

Reduction of common stock subscribed                     558,663                                            558,663
                                                       -----------       -----------    ------------    -----------
Balance as of June 30, 2001                             (1,675,987)          485,476      (7,716,853)    26,165,384
                                                       -----------       -----------    ------------    -----------
Comprehensive income:
                  Net income, 2002                                                                          545,754
                  Other comprehensive income,
                  net of tax benefit of $9,940                                                               21,202
                                                                                                        -----------
Comprehensive income                                                                                        566,956

Stock option exercises                                                        (5,100)         97,984         67,575

Dividends paid on common stock
   $.30 per share                                                                                          (309,176)

Tax effect of dividends on
   unallocated ESOP shares                                                                                    5,041

Reduction of common stock subscribed                       558,662                                          558,662

                                                       -----------       -----------     -----------    -----------
Balance as of June 30, 2002                             (1,117,325)          480,376      (7,618,869)    27,054,442
                                                       -----------       -----------     -----------    -----------

Comprehensive income:
                  Net income, 2003                                                                          964,700
                  Other comprehensive gain,
                    net of tax benefit of $15,599                                                            19,589
                  Reclassification adjustment                                                                 9,490
                                                                                                        -----------
Comprehensive income                                                                                        993,779

Stock option exercises                                                        (1,000)         19,850         13,250

Dividends paid on common stock
   $.35 per share                                                                                          (358,099)

Tax effect of dividends on
   unallocated ESOP shares                                                                                    2,941

Purchase of treasury stock                                                    15,918        (311,468)      (311,468)

Reduction of common stock subscribed                       558,663                                          558,663
                                                       -----------       -----------    ------------    -----------
Balance as of June 30, 2003                               (558,662)          495,294     $(7,910,487)   $27,953,508
                                                       ===========       ===========    ============    ===========

</TABLE>


The accompanying notes are an integral part of the consolidated financial
statements.

                                       13

<PAGE>
<TABLE>
<CAPTION>

Espey Mfg. & Electronics Corp. and Subsidiary
Consolidated Statements of Cash Flows
Years Ended June 30, 2003, 2002 and 2001
-------------------------------------------------------------------------------------------------------------------
                                                                       2003                2002            2001
                                                                   -------------      -----------       -----------
Cash flows from operating activities:
<S>                                                                <C>                <C>               <C>
     Net income...........................................         $     964,700      $   545,754       $ 1,033,069

     Adjustments to reconcile net income to net cash provided by
       (used in) operating activities:

           Tax effect of dividends on
              unallocated ESOP shares.....................                 2,941            5,043             5,043

           Depreciation  .................................               495,670          513,470           604,988

           Loss on sale of investment securities..........                15,817              --                --

           Gain (loss) on disposal of assets..............                   --            35,782            (4,272)

           Deferred income tax expense....................                57,359          112,097           188,709

           Change in assets and liabilities

                 (Increase) decrease in trade account
                 receivables, and other receivables, net..            (1,059,414)         145,370         1,582,974

                Decrease (increase)in inventories, net....               904,528        2,191,882          (106,225)

                Decrease (increase) in prepaid
                  expenses and other current assets.......                73,553          (46,181)           93,621

                Increase (decrease) in
                  accounts payable........................               150,143          162,682          (206,864)

                Increase (decrease) in accrued
                  salaries, wages and commissions.........                 1,406          (37,200)         (120,784)

                Increase (decrease) in accrued
                  employee insurance costs................                   150          (54,911)           (3,396)

                Increase in other accrued expenses........                   951            3,699            16,602

                Increase in vacation accrual..............                66,916           53,352            65,053

                Increase (decrease) in payroll and
                  other taxes withheld and accrued........                   482           (1,454)          (12,402)

                Increase (decrease) in income
                  taxes payable...........................               261,266           27,526           (62,635)
                                                                   -------------      -----------       -----------
                      Net cash provided by
                         operating activities............           $  1,936,468      $ 3,656,911       $ 3,073,481
                                                                    ------------      -----------       -----------
</TABLE>

                                       14


<PAGE>


<TABLE>
<CAPTION>


Cash flows from investing activities

<S>                                                                      <C>              <C>              <C>
     Proceeds from maturity of investment
       securities.........................................               403,188          399,869               --

     Additions to property, plant and equipment...........              (438,481)        (393,865)         (536,748)

     Proceeds on sale of assets...........................                  --             12,250            15,350

     Reduction of common stock subscribed.................               558,663          558,662           558,662
                                                                   -------------      -----------       -----------
                      Net cash provided by
                         investing activities.............               523,370          576,916            37,264
                                                                   -------------      -----------       -----------
Cash flows from financing activities

     Dividends on common stock............................              (358,099)        (309,176)         (206,309)

     Purchase of treasury stock..........................               (311,468)             --            (70,891)

     Proceeds from exercise of stock options..............                13,250           67,575               --
                                                                   -------------      -----------       -----------
                      Net cash used in
                         financing activities.............              (656,317)        (241,601)         (277,200)
                                                                   -------------      -----------       -----------
Increase in cash and cash equivalents.....................             1,803,521        3,992,226         2,833,545

Cash and cash equivalents, beginning of the year..........             9,192,962        5,200,736         2,367,191
                                                                   -------------      -----------       -----------
Cash and cash equivalents, end of the year................         $  10,996,483      $ 9,192,962       $ 5,200,736
                                                                   =============      ===========       ===========
Supplemental disclosures of cash flow information:
     Income taxes paid....................................         $          --      $     62,238      $   295,000
                                                                   =============      ============      ===========
</TABLE>


The accompanying notes are an integral part of the consolidated financial
statements.

                                       15

<PAGE>


Espey Mfg. & Electronics Corp. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

1.   Nature of operations

     Espey Mfg. & Electronics Corp. and Subsidiary (the Company) is a
     manufacturer of electronic equipment used primarily in military and
     industrial applications. The principal markets for the Company's products
     are companies that provide electronic support to both military and
     industrial applications. During 1999, the Company established a foreign
     sales corporation (Subsidiary).

2.   Summary of Significant Accounting Policies

     Inventory Valuation, Cost Estimation and Revenue Recognition Raw materials
     are valued at weighted average cost.

     Inventoried work relating to contracts in process and work in process is
     valued at actual production cost, including factory overhead incurred to
     date. Work in process represents spare units, parts and other inventory
     items acquired or produced to service units previously sold or to meet
     anticipated future orders. The cost elements of contracts in process and
     work in process consist of production costs of goods and services currently
     in process and overhead. Provision for losses on contracts is made when the
     existence of such losses becomes evident. The costs attributed to units
     delivered under contracts are based on the estimated average cost of all
     units expected to be produced. Certain contracts are expected to extend
     beyond twelve months.

     Revenue is recognized on contracts in the period in which the units are
     delivered and billed (unit-of-delivery method).

     A significant portion of our business is comprised of development and
     production contracts which are accounted for under the provisions of the
     American Institute of Certified Public Accountants (AICPA) Statement of
     Position No. 81-1, "Accounting for Performance of Construction-Type and
     Certain Production-Type Contracts." Generally revenue on long-term
     fixed-price contracts are recorded on a percentage of completion basis
     using units of delivery as the measurement basis for progress toward
     completion.

     Contract accounting requires judgment relative to estimating costs and
     making assumptions related to technical issues and delivery schedule.
     Contract costs include material, subcontract costs, labor and an allocation
     of indirect costs. The estimation of cost at completion of a contract is
     subject to numerous variables involving contract costs and estimates as to
     the length of time to complete the contract. Given the significance of the
     estimation processes and judgments described above, it is possible that
     materially different amounts of contract costs could be recorded if
     different assumptions were used in the estimation of cost at completion.
     When a change in contract value or estimated cost is determined, changes
     are reflected in current period earnings.

     Depreciation
     Depreciation of plant and equipment is computed on a straight-line basis
     over the estimated useful lives of the assets.

     Income Taxes
     The Company follows the provisions of Statement of Financial Accounting
     Standards (SFAS) No. 109, "Accounting for Income Taxes."

     Under the provisions of SFAS No. 109, deferred tax assets and liabilities
     are recognized for the future tax consequences attributable to differences
     between the financial statement carrying amounts of existing assets and
     liabilities and their respective tax bases. Deferred tax assets and
     liabilities are measured using enacted tax rates expected to apply to
     taxable income in the years in which those temporary differences are
     expected to be recovered or settled. In addition, SFAS No. 109 requires
     that the tax benefit of tax-deductible dividends

                                       16
<PAGE>


Espey Mfg. & Electronics Corp. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

2.   Summary of Significant Accounting Policies, Continued

     on unallocated ESOP shares be recorded as a direct addition to retained
     earnings rather than as a reduction of income tax expense.

     Cash and Cash Equivalents
     Cash and cash equivalents consist of cash in banks, certificates of
     deposit, and money market accounts.

     Investment Securities
     The Company accounts for its investments in accordance with SFAS No. 115,
     "Accounting for Certain Investments in Debt and Equity Securities."

     Investment securities at June 30, 2002 consist of corporate equity
     securities. The Company classifies corporate equity securities as
     available-for-sale.

     Unrealized holding gains and losses, net of the related tax effect, on
     available-for-sale securities are excluded from earnings and are reported
     as a separate component of stockholders' equity until realized. Realized
     gains and losses for securities classified as available-for-sale are
     included in income and are determined using the specific identification
     method. Interest income is recognized when earned.

     Stock-Based Compensation
     The intrinsic value method of accounting is used for stock-based
     compensation plans. Under the intrinsic value method, compensation cost is
     measured as the excess, if any, of the quoted market price of the stock at
     the grant date over the amount an employee must pay to acquire the stock.

     Per Share Amounts
     Basic earnings per share excludes dilution and is computed by dividing
     income available to common stockholders by the weighted average number of
     common shares outstanding for the period. Diluted earnings per share
     reflects the potential dilution that could occur if securities or other
     contracts to issue Common Stock were exercised or converted into Common
     Stock or resulted in the issuance of Common Stock that then shared in the
     income of the Company.

     Comprehensive Income
     Comprehensive income consists of net income and unrealized gains (losses)
     on securities available-for-sale and is presented in the Statement of
     Changes in Stockholders' Equity.

     Use of Estimates
     The preparation of financial statements in conformity with accounting
     principles generally accepted in the United States of America requires
     management to make estimates and assumptions that effect the reported
     amount of assets and liabilities and disclosure of contingent assets and
     liabilities at the date of the financial statements and the reported
     amounts of revenues and expenses during the reporting period. Actual
     results could differ from those estimates.

     Investment Tax Credits
     Investment tax credits are accounted for as a reduction of income tax
     expense in the year taxes payable are reduced.

     Reclassifications
     Certain reclassifications may have been made to the prior year financial
     statements to conform to the current year presentation.

                                       17


<PAGE>


Espey Mfg. & Electronics Corp. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

2.   Summary of Significant Accounting Policies, Continued

     Accounting Pronouncements

     In June 2002, the Financial Accounting Standards Board issued SFAS 146,
     "Accounting for Costs Associated with Exit or Disposal Activities". This
     Standard addresses the recognition, measurement and reporting costs that
     are associated with exit or disposal activities. SFAS No.146 is effective
     for exit or disposal activities that are initiated after December 31, 2002.
     The adoption of SFAS No. 146 did not have a material effect on the
     financial statements

     In November 2002, the Financial Accounting Standards Board issued FASB
     Interpretation No. 45 "Guarantor's Accounting and Disclosure Requirements
     for Guarantees, Including Indirect Guarantees of Indebtedness of Others."
     This interpretation elaborates on the disclosures to be made by a guarantor
     in its interim and annual financial statements about its obligations under
     certain guarantees that it has issued. It also clarifies that a guarantor
     is required to recognize, at the inception of a guarantee, a liability for
     the fair value of the obligation undertaken in issuing the guarantee. The
     adoption did not have a material impact on the financial statements.

     In April 2003, The Financial Accounting Standards Board issued Statement of
     Financial Accounting Standards No. 149, "Amendment of Statement 133 on
     Derivative Instruments and Hedging Activities" ("SFAS No. 149"). SFAS No.
     149 amends and clarifies accounting for derivative instruments, including
     certain derivative instruments embedded in other contracts and for hedging
     activities under Statement of Financial Accounting Standards No. 133,
     "Accounting for Derivative Instruments and Hedging Activities". SFAS No.
     149 is generally effective for derivative instruments, including derivative
     instruments embedded in certain contracts, entered into or modified after
     June 30, 2003 and for hedging relationships designated after June 30, 2003.
     The Company does not expect the adoption of SFAS No. 149 to have a material
     impact on its financial statements.

     In May 2003, The Financial Accounting Standards Board issued Statement of
     Financial Accounting Standards No. 150, "Accounting for Certain Financial
     Instruments with Characteristics of both Liabilities and Equity" ("SFAS No.
     150"). SFAS No. 150 establishes standards for how an issuer classifies and
     measures certain financial instruments with characteristics of both
     liabilities and equity. It requires that an issuer classify a financial
     instrument that is within its scope as a liability (or an asset in some
     circumstances). Many of those instruments were previously classified as
     equity. SFAS No. 150 is effective for financial instruments entered into or
     modified after May 31, 2003, and otherwise is effective at the beginning of
     the first interim period beginning after June 15, 2003. The adoption of
     SFAS No. 150 will not have a material impact on the financial statements.

     Concentrations of Risk
     The market for our defense electronics products is largely dependent on the
     availability of new contracts from the United States and foreign
     governments to prime contractors to which we provide components. Any
     decline in expenditures by the United States or foreign governments may
     have an adverse effect on our financial performance.

     Also, our international sales are denominated in United States currency.
     Consequently, changes in exchange rates that strengthen the United States
     dollar could increase the price in local currencies of our products in
     foreign markets and make our products relatively more expensive than
     competitor's products.

                                       18

<PAGE>



Mfg. & Electronics Corp. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

3.   Investment Securities

     Investment securities at June 30, 2002 consist of corporate equity
     securities, which are classified as available-for-sale securities, and
     recorded at market value. The cost, gross unrealized holding losses and
     fair value of available-for-sale securities at June 30, 2002 are as
     follows:
<TABLE>
<CAPTION>

                                                                                 Gross Unrealized
     Year                   Type                       Cost            Holding Loss            Fair Value
     -----                  -----                     -----          ---------------           ----------

     <S>              <C>                            <C>                  <C>                   <C>
     2002            Corporate Equities             $ 419,005             $  51,005             $ 368,000

</TABLE>


     The change in unrealized holding loss on available for sale investment
     securities net of tax was $ 20,460 in 2002. During 2003 the Company sold
     its only corporate equity security for $403,188. During 2002 the Company
     sold an equity security with a cost basis of $400,000 for $399,128 in net
     proceeds.

4.   Contracts in Process

     Contracts in process at June 30, 2003 and 2002 are as follows:
<TABLE>
<CAPTION>

                                                        2003                2002
                                                    -------------       ------------

<S>                                                 <C>                 <C>
     Gross contract value                           $ 21,370,490        $ 24,644,653

     Costs related to contracts in process,
     net of progress payments of $3,314,816
     in 2003 and $2,194,269 in 2002                 $  7,246,158        $  7,017,529

</TABLE>


     Included in costs relating to contracts in process at June 30, 2003 and
     2002 are costs of $1,460,338 and $1,999,616, respectively, relative to
     contracts that may not be completed within the ensuing year. Under the
     unit-of-delivery method, the related sale and cost of sales will not be
     reflected in the statement of income until the units under contract are
     shipped.

5.   Property, Plant and Equipment

     A summary of the original cost of property, plant and equipment at June 30,
     2003 and 2002 is as follows:
<TABLE>
<CAPTION>

                                                              2003               2002
                                                         -------------     ------------

<S>                                                       <C>              <C>
        Land                                              $     45,000     $     45,000
        Building and improvements                            3,981,689        3,813,343
        Machinery and equipment                              7,273,596        7,011,192
        Furniture, fixtures and office equipment               308,394          305,713
                                                         -------------     ------------
                                                         $  11,608,679     $ 11,175,248
                                                         =============     ============
</TABLE>


     Estimated useful lives of depreciable assets are as follows:

        Buildings and improvements                       10 - 25 years
        Machinery and equipment                           3 - 10 years
        Furniture, fixtures and office equipment              10 years

                                       19
<PAGE>


Espey Mfg. & Electronics Corp. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

6.   Line of credit

     At June 30, 2003, the Company has an uncommitted and unused Line of Credit
     with a financial institution. The agreement provides that the Company may
     borrow up to $3,000,000. The line provides for interest at the borrower's
     choice of (I) prime minus .75% or (II) LIBOR plus 1.80% for periods of 1,
     2, or 3 months. Any borrowing under the line of credit will be
     collateralized by accounts receivable.

7.   Research and Development Costs

     Research and development costs charged to cost of sales during the years
     ended June 30, 2003, 2002 and 2001 were approximately $100,000, $335,000,
     and $249,000, respectively.

8.   Pension Expense

     Under terms of a negotiated union contract, the Company is obligated to
     make contributions to a union-sponsored defined benefit pension plan
     covering eligible employees. Such contributions are based upon hours worked
     at a specified rate and amounted to $93,066 in 2003, $83,778 in 2002, and
     $92,662 in 2001.

9.   Provision for Income Taxes

     A summary of the components of the provision for income taxes for the years
     ended June 30, 2003, 2002 and 2001 is as follows:

<TABLE>
<CAPTION>

                                                           2003            2002           2001
                                                         ---------      ---------       ---------
<S>                                                      <C>            <C>             <C>
        Current tax expense (benefit)-federal            $ 252,961      $  49,653       $ 257,400
        Current tax expense - state                         11,246          1,383          17,000
        Deferred tax expense (benefit)                      57,359        131,964         167,635
                                                         ---------      ---------       ---------
                                                         $ 321,566      $ 183,000       $ 442,035
                                                         =========      =========       =========
</TABLE>

     Deferred income taxes reflect the impact of "temporary differences" between
     the amount of assets and liabilities for financial reporting purposes and
     such amounts measured by tax laws and regulations. These "temporary
     differences" are determined in accordance with SFAS No. 109.

     The combined U.S. federal and state effective income tax rates of 25%, 25%,
     and 30.0%, for 2003, 2002 and 2001 respectively, differed from the
     statutory U.S. federal income tax rate for the following reasons:
<TABLE>
<CAPTION>


                                                           2003     2002    2001
                                                          ------   -----   -----
<S>                                                       <C>      <C>     <C>
        U.S. federal statutory income tax rate            34.0%    34.0%   34.0%
        Increase (reduction) in rate
             resulting from:
                 Dividends received deduction             (1.0)     (1.0)   (0.8)
                 State franchise tax, net of federal
                      income tax benefit                   1.0      1.1     1.4
                 Foreign sales corporation benefit        (5.0)     (7.3)   (4.7)
                 Other                                    (4.0)     (1.7)     .1
                                                         -------    -----   -----
        Effective tax rate                                25.0%     25.1%   30.0%
                                                         =======    =====   =====
</TABLE>


     For the years ended June 30, 2003 and 2002 deferred income tax expense of
     $59,182 and $131,964, respectively, result from the changes in temporary
     differences for each year. The tax effects of temporary differences that
     give rise to deferred tax assets and deferred tax liabilities as of June
     30, 2003 and 2002 are presented as follows:

                                       20
<PAGE>

<TABLE>
<CAPTION>

Espey Mfg. & Electronics Corp. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

9.   Provision for Income Taxes, Continued

                                                                                   2003            2002
                                                                                 --------        --------
<S>                                                                             <C>             <C>
        Deferred tax assets:
            Unrealized loss on available-for-sale
                 investment securities.....................................      $     --       $  20,102
            Common stock subscribed - due to difference
                 in interest recognition...................................       142,159         255,983
            Non-deductible accruals........................................       105,443          92,354
            Other..........................................................        16,875          18,353
                                                                                 --------        --------
                          Total deferred tax assets .......................       264,477         386,792
                                                                                 --------        --------
        Deferred tax liabilities:
            Property, plant and equipment - principally due
                 to differences in depreciation methods....................       344,393         376,064
            Inventory - effect on uniform capitalization...................        33,675          45,036
                                                                                 --------        --------
                          Total deferred tax liabilities...................       378,068         421,100
                                                                                 --------        --------
        Net deferred tax (liability)/asset.................................     $(113,591)      $ (34,308)
                                                                                 ========       ==========
</TABLE>


     In assessing the realizability of deferred tax assets, management considers
     whether it is more likely than not that some portion or all of the deferred
     tax assets will be realized. The ultimate realization of deferred tax
     assets is dependent upon the generation of future taxable income during the
     periods in which those temporary differences become deductible. Management
     considers the schedule reversal of deferred tax liabilities, projected
     future taxable income, and tax planning strategies in making this
     assessment. Based upon the level of historical taxable income and
     projection for future taxable income over the period in which the deferred
     tax assets are deductible, management believes it is more likely than not
     that the Company will realize the benefits of these temporary differences
     without consideration of a valuation allowance.

10.  Significant Customers

     A significant portion of the Company's business is the production of
     military and industrial electronic equipment for use by the U.S. and
     foreign governments and certain industrial customers. Sales to two domestic
     customers and one foreign customer accounted for 25%, 19%, and 12%,
     respectively, of total sales in 2003. Sales to two domestic customers and
     one foreign customer accounted for 26%, 21%, and 14%, respectively, of
     total sales in 2002. Sales to two domestic customers accounted for 40% and
     20% respectively, of total sales in 2001.

     Export sales aggregated approximately $ 7,100,000, $ 6,600,000, and
     $8,700,000, for the years ended June 30, 2003, 2002 and 2001, respectively.

11.  Stock Rights Plan

     The Company has a Shareholder Rights Plan which expires on December 31,
     2009. Under this plan, common stock purchase rights were distributed as a
     dividend at the rate of one right for each share of common stock
     outstanding as of or issued subsequent to April 14, 1989. Each right
     entitles the holder thereof to buy one-half share of common stock of the
     Company at an exercise price of $50 per share subject to adjustment. The
     rights are exercisable only if a person or group acquires beneficial
     ownership of 15% or more of the Company's common stock or commences a
     tender or exchange offer which, if consummated, would result in the offer
     or, together with all affiliates and associates thereof, being the
     beneficial owner of 15% or more of the Company's common stock.

     If a 15% or larger shareholder should engage in certain self-dealing
     transactions or a merger with the Company in which the Company is the
     surviving corporation and its shares of common stock are not changed or
     converted into equity securities of any other person, or if any person were
     to become the

Espey Mfg. & Electronics Corp. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

11.  Stock Rights Plan, Continued

     beneficial owner of 15% or more of the Company's common stock, than each
     right not owned by such shareholder or related parties of such shareholder
     (all of which will be void) will entitle its holder to purchase, at the
     right's then current exercise price, shares of the Company's common stock
     having a value of twice the right's exercise price. In addition, if the
     Company is involved in any other merger or consolidation with, or sells 50%
     or more of its assets or earning power to, another person, each right will
     entitle its holder to purchase, at the right's then current exercise price,
     shares of common stock of such other person having a value of twice the
     right's exercise price.

                                       21

<PAGE>


     The Company generally is entitled to redeem the rights at one cent per
     right at any time until the 15th day (or 25th day if extended by the
     Company's Board of Directors) following public announcement that a 15%
     position has been acquired or the commencement of a tender or exchange
     offer which, if consummated, would result in the offer or, together with
     all affiliates and associates thereof, being the beneficial owner of 15% or
     more of the Company's common stock.

12.  Employee Stock Ownership Plan

     In 1989, the Company established an Employee Stock Ownership Plan (ESOP)
     for eligible non-union employees. The ESOP used the proceeds of a loan from
     the Company to purchase 316,224 shares of the Company's common stock for
     approximately $8.4 million and the Company contributed approximately
     $400,000 in 1989 to the ESOP which was used by the ESOP to purchase an
     additional 15,000 shares of the Company's common stock. Since inception of
     the Plan, the ESOP has sold or distributed 127,125 shares of the Company's
     common stock to pay benefits to participants. At June 30, 2003 and 2002,
     the ESOP held a total of 251,574 and 262,912 shares, respectively, of the
     Company's common stock, of which 230,562 and 220,888 shares, respectively,
     were allocated to participants in the Plan.

     The loan from the Company to the ESOP is repayable in annual installments
     of $1,039,605 including interest, through June 30, 2004. Interest is
     payable at a rate of 9% per annum. The Company's receivable from the ESOP
     is recorded as common stock subscribed in the accompanying balance sheets.
     The Company Espey recognizes the principal payments of the ESOP debt, on a
     straight-line basis over the term of the note, as compensation expense.

     Each year, the Company makes contributions to the ESOP which are used to
     make loan payments. With each loan payment, a portion of the common stock
     is allocated to participating employees. For the periods ended June 30,
     2003 and 2002, 21,012 shares were allocated to participants. In 2003, the
     Company's required contribution of $1,039,605 was reduced by $14,708, which
     represents the dividends paid on unallocated ESOP shares. The resulting
     payment of $1,024,897 includes $543,954 classified as compensation expense.
     In 2002, the Company's required contribution of $1,039,605 was reduced by
     $18,911, which represents the dividends paid on the unallocated ESOP
     shares. The resulting payment of $1,020,694 includes $539,752 classified as
     compensation expense. In 2001, the Company's required contribution of
     $1,039,605 was reduced by $16,809, which represents the dividends paid on
     unallocated ESOP shares. The resulting payment of $1,022,796 includes
     $541,853 classified as compensation expense. All shares purchased by the
     ESOP are considered to be outstanding for the income per share
     computations.

13.  Stock Options

     During fiscal 2000, the Board of Directors and shareholders approved the
     2000 Stock Option Plan (the Plan). Under the Plan, incentive and
     non-qualified stock options will be granted to purchase shares of common
     stock of the Company. As of June 30, 2002, the Plan was authorized to issue
     options to purchase 113,500 shares of the Company's common stock with a
     maximum of 15,000 shares in any one year.


Espey Mfg. & Electronics Corp. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

13.  Stock Options, Continued

     Options granted under the Plan have been granted with exercise prices at
     fair market value at the grant date and vest over a period of two years.

     Information concerning the plans incentive and non-qualified stock options
     is as follows:

                                          Option              Option Price
                                          Shares                Per Share
        ------------------------------------------------------------------
        June 30, 1999                          0                  $0.00
        ------------------------------------------------------------------
        Options granted                   11,500                  13.25
        Options canceled                    (800)                 13.25
        Options exercised                 (6,100)                 13.25
        ------------------------------------------------------------------
        June 30, 2000                      4,600                 $13.25
        ------------------------------------------------------------------

                                       22
<PAGE>


        Options granted                   13,100                     17.95
        Options canceled                    (300)                    17.95
        Options exercised                     --                       --
        ------------------------------------------------------------------
        June 30, 2001                     17,400            $13.25 - 17.95
        ------------------------------------------------------------------
        Options granted                   13,000                     19.85
        Options canceled                      --                       --
        Options exercised                     --                       --
        ------------------------------------------------------------------
        June 30, 2002                     30,400            $13.25 - 19.85
        ------------------------------------------------------------------
        Options granted                   14,800                     18.50
        Options canceled                      --                       --
        Options exercised                     --                       --
        ------------------------------------------------------------------
        June 30, 2003                     45,200            $13.25 - 19.85
        ==================================================================


     The table below summarizes information with respect to stock options
     outstanding as of June 30, 2003:

<TABLE>
<CAPTION>

                                                      Remaining                           Exercise Price of
            Exercise               Options           Contractual          Options            Exercisable
             Prices              Outstanding            Life            Exercisable            Options
        ---------------------------------------------------------------------------------------------------
            <S>                      <C>                 <C>               <C>                 <C>
            $ 13.25                  4,600               6                 4,600               $ 13.25
            $ 17.95                 12,800               7                12,800               $ 17.95
            $ 19.85                 13,000               8                     0                    --
            $ 18.50                 14,800               9                     0                    --
        ----------------------------------------------------------------------------------
        Total                       45,200                                17,400
        ==================================================================================
</TABLE>


     The Company has elected to apply Accounting Principles Board Opinion No.
     25, "Accounting for Stock Issued to Employees," in accounting for the Plan.
     Under APB 25, no compensation expense has been recognized. Had compensation
     cost and fair value been determined pursuant to Statement of Financial
     Accounting Standards No. 123 (FAS 123) "Accounting for Stock-Based
     Compensation," net income would have decreased from $ 964,700 to $927,788,
     $545,754 to $509,674, and $1,033,069 to $1,018,526 for the years ended June
     30, 2003, 2002 and 2001, respectively. Proforma basic and diluted earnings
     per share would have been $.91, $.49, and $.99 respectively. The impact of
     FAS 123 on pro forma earnings per share may not be representative of the
     effect on income in future years

Espey Mfg. & Electronics Corp. and Subsidiary
Notes to Consolidated Financial Statements
-------------------------------------------------------------------------------

13.  Stock Options, Continued

     because options vest over several years and additional option grants may be
     made each year.

     The weighted average fair value of options granted under the plans during
     fiscal years 2003, 2002, and 2001 was $4.31, $3.93, and $4.67,
     respectively. The assumptions used for the Black-Scholes model are as
     follows:
<TABLE>
<CAPTION>

                                                                         2003           2002           2001
                                                                        ------         ------          ------
<S>                                                                       <C>            <C>             <C>
        Risk-free interest rate.................................          3.5%           4.5%            5.0%
        Expected term...........................................       5 years        5 years         5 years
        Company's expected volatility...........................         20.0%          20.0%           25.0%
        Dividend yield..........................................          2.5%           2.5%            2.5%
</TABLE>

14.  Financial Instruments/Concentration of Credit Risk

     The carrying amounts of financial instruments, including cash and cash
     equivalents, investment securities, accounts receivable, accounts payable

                                       23
<PAGE>


     and accrued expenses, approximated fair value as of June 30, 2003 and 2002
     because of the relatively short maturities of these instruments.

     Financial instruments that potentially subject the Company to
     concentrations of credit risk consist principally of cash and cash
     equivalents, investment securities and accounts receivable. The Company
     maintains cash and cash equivalents with various financial institutions. At
     times such investments may be in excess of FDIC insurance limits. As
     disclosed in Note 10, a significant portion of the Company's business is
     the production of military and industrial electronic equipment for use by
     the U.S. and foreign Government and certain industrial customers. The
     related accounts receivable balance represented by three customers was 57%
     and 39% of the Company's total trade accounts receivable balance at June
     30, 2003 and 2002, respectively.

     Although the Company's exposure to credit risk associated with nonpayment
     of these balances is affected by the conditions or occurrences within the
     U.S. Government, the Company believes that its trade accounts receivable
     credit risk exposure is limited. The Company performs ongoing credit
     evaluations of its customer's financial conditions and requires collateral,
     such as progress payments, in certain circumstances. The Company
     establishes an allowance for doubtful accounts based upon factors
     surrounding the credit risk of specific customers, historical trends and
     other information.

15.  Related Parties

     The Company paid a law firm in which a director of the Company is a
     partner, a total of $22,000, $24,000 and $27,000 for legal services during
     fiscal years ended June 30, 2003, 2002, and 2001, respectively.

                                       24
<PAGE>
<TABLE>
<CAPTION>


Espey Mfg. & Electronics Corp. and Subsidiary
Notes to Consolidated Financial Statements
--------------------------------------------------------------------------------

16.  Quarterly Financial Information (Unaudited)

                                                    First          Second            Third         Fourth
                                                  Quarter          Quarter          Quarter        Quarter
        2003                                       -------         -------          -------        -------
<S>                                              <C>             <C>             <C>             <C>
        Net Sales .........................      $4,491,359      $5,374,456      $5,707,503      $4,200,093
            Gross profit (loss)............         789,221         (75,254)      1,223,106       1,160,788
            Net income (loss)..............         306,545        (417,334)        575,586         499,903

        Net income (loss)
         (per share - basic and
         diluted)..........................            0.30           (0.41)           0.56            0.49


        2002
        Net Sales..........................      $4,585,515      $5,199,517      $4,616,587      $4,003,594
            Gross profit ..................         607,585         593,569         700,016         399,824
            Net income.....................         203,691          81,999         212,644          47,420

        Net income
         (per share - basic and
         diluted)..........................            0.20            0.08            0.20            0.05


        2001
        Net Sales..........................      $4,167,234      $4,184,994      $4,615,137      $4,284,274
            Gross profit ..................         688,261         889,008         694,761         789,699
            Net income.....................         203,420         269,269         205,554         354,826

        Net income (per share -
         basic and diluted) ...............            0.20            0.26            0.20            0.34

</TABLE>


                                       25

<PAGE>


                                    PART III

Item 9. Changes in and disagreements with accountants on accounting and
        financial disclosure

None

Item 9A. Controls and Procedures

     Within the 90-day period prior to the filing date of this report, an
     evaluation was conducted under the supervision of and with the
     participation of Espey's management, including the Chief Executive Officer
     and the Principal Financial Officer, of the effectiveness of the design and
     operation of our disclosure controls and procedures. Based on that
     evaluation, the Chief Executive Officer and the Principal Financial Officer
     have concluded that our disclosure controls and procedures are effective to
     ensure that all material information related to the Company and its
     consolidated subsidiary is made known to them, particularly during the
     period when our periodic reports are being prepared. Subsequent to the date
     the Chief Executive Officer and Principal Financial Officer completed their
     evaluation, there have been no significant changes in our internal
     controls, or in other factors that could significantly affect the internal
     controls, including any corrective actions with regard to significant
     deficiencies and material weaknesses. It should be noted that the design of
     any system of controls is based in part upon certain assumptions about the
     likelihood of future events, and there can be no assurance that any design
     will succeed in achieving its stated goals under all potential future
     conditions, regardless of how remote.

Item 10. Directors and Executive Officers of the Registrant

Identification of Directors
<TABLE>
<CAPTION>

                                    Date Present Term           Other Positions
                                   Expires and Period           and Offices Held
         Name                      Served as Director           With Registrant        Age
         -----                     ------------------           ----------------       ---

<S>                                <C>                           <C>                   <C>
         Paul J. Corr              Annual Meeting in             None                   59
                                   December 2005
                                   Director since 1992

         William P. Greene         Annual Meeting in             None                   73
                                   December 2004
                                   Director since 1992

         Carl Helmetag             Annual Meeting in             None                   55
                                   December 2003
                                   Director since 1999

         Barry Pinsley             Annual Meeting in             Non-Executive          61
                                   December 2005                 officer
                                   Director since 1994

         Howard Pinsley            Annual Meeting in             President and Chief    63
                                   December 2003                 Executive Officer
                                   Director since 1992

         Alvin O. Sabo             Annual Meeting in             None                   60
                                   December 2003
                                   Director since 1999

         Seymour Saslow            Annual Meeting in             None                   82
                                   December 2004
                                   Director since 1992

         Michael W. Wool           Annual Meeting in             None                   57
                                   December 2005
                                   Director since 1990
</TABLE>


                                       26


<PAGE>
<TABLE>
<CAPTION>


Identification of Executive Officers

                                Positions and
                                Offices Held               Period Served As
       Name                     With Company               Executive Officer               Age
       ----                     -----------------          -----------------               ---

<S>                             <C>                       <C>                              <C>
       Howard Pinsley           President and              Served as Vice President-       63
                                Chief Executive            Special Power Supplies
                                Officer                    from April 3, 1992
                                                           until being elected
                                                           as Executive Vice
                                                           President on December
                                                           6, 1997. Elected to
                                                           present office on
                                                           December 10, 1998

       John J. Pompay, Jr.      Vice President-            Since December 6, 1996          68
                                Marketing and Sales

       David A. O'Neil          Treasurer & Principal      Since January 4, 2000.          38
                                Financial Officer          Controller and Assistant
                                                           Treasurer from December 11,
                                                           1998 to January 3, 2000

       Peggy A. Murphy          Secretary                  Since December 11, 1998         45

       Garry M. Jones           Assistant Treasurer        Since August 4, 1988.           63
                                & Principal Accounting     Principal Financial
                                Officer                    Officer from August 4, 1988
                                                           to September 10, 1993

       Timothy A. Polidore      Assistant Treasurer        Since December 8, 2000          43
</TABLE>



     The terms of office of Mrs. Peggy A. Murphy, Mr. David A. O'Neil, Mr.
     Timothy A. Polidore, and Mr. Garry M. Jones are until the next annual
     meeting of the Board of Directors unless successors are sooner appointed by
     the Board of Directors. The terms of office of Mr. Howard Pinsley and Mr.
     John Pompay are subject to the agreements between them and the Company. See
     "Employment Contracts and Termination of Employment."

     Family Relationships

     Barry Pinsley and Howard Pinsley are cousins.

     Business Experience of Directors and Officers

     Paul J. Corr is a Certified Public Accountant and has been a Professor of
     Business at Skidmore College in Saratoga Springs, New York since 1981. Mr.
     Corr currently holds the position of Associate Professor. Mr. Corr is also
     a shareholder in the Latham, New York accounting firm of Rutnik, Matt &
     Corr, P.C.

     William P. Greene, D.B.A. was vice president of operations for the Company
     until December 31, 2000 when he retired. Prior to joining the Company's
     management team he was Vice President of Finance for ComCierge, LLC, San
     Diego, CA since August 1997. Prior to that position, Dr. Greene held the
     position of Vice President Operations for Bulk Materials International,
     Newtown, CT from 1993 to July 1997. From 1991 to 1993, Dr. Greene was
     Associate Professor of Finance and International Business at Pennsylvania
     State University Kutztown, PA. From 1985 to 1990, he was Associate Dean of
     the School of Business, United States International University, San Diego,
     CA. From 1992 to 1995, he was Chairman of the Department of Business,
     Skidmore College, Saratoga Springs, NY.

     Barry Pinsley is a Certified Public Accountant who for five years acted as
     a consultant to the Company prior to his election as Vice President-Special
     Projects on March 25, 1994. On December 6, 1997, Mr. Pinsley was elected to
     the position of Vice President-Investor Relations and Human Resources, from
     which he resigned on June 9, 1998. Mr. Pinsley has been a practicing
     Certified Public Accountant in Saratoga Springs, New York since 1975.


     Howard Pinsley for more than the past five years has been employed by the
     Company on a full-time basis as a Program Director prior to being elected
     Vice President-Special Power Supplies on April 3, 1992. On December 6,
     1996, Mr. Pinsley was elected to the position of Executive Vice President.
     On June 9, 1998 he was elected to the positions of President and Chief
     Operating Officer. On December 10, 1998 he became the President and Chief
     Executive Officer.

                                       27

<PAGE>


     Seymour Saslow had been Senior Vice President since December 6, 1996. Prior
     to being elected to Senior Vice President, Mr. Saslow served as Vice
     President-Engineering since April 3, 1992. Mr. Saslow resigned as an
     executive officer effective December 31, 1999.

     Michael W. Wool is an attorney engaged in the private practice of law and
     as a senior partner since 1982 in the law firm of Langrock, Sperry & Wool
     with offices in Burlington and Middlebury, Vermont.

     Alvin O. Sabo is an attorney engaged in private practice of law and Senior
     Partner of the law firm of Donohue, Sabo, Varley & Armstrong, P.C. in
     Albany, NY since 1980. Prior to that position, he was Assistant Attorney
     General, State of New York, Department of Law for eleven years.

     Carl Helmetag is currently President and CEO of UVEX Inc. in Providence,
     RI. From 1996 to 1999, he was President and CEO of Head USA Inc. Prior to
     that position, Mr. Helmetag was Executive Vice President, and then
     President at Dynastar Inc. from 1978 to 1996. He is an MBA graduate from
     the Wharton School of Business, University of Pennsylvania.

     Peggy Murphy is Secretary of the Company since December 11, 1998. She has
     been employed by the Company as Director of Human Resources since October
     1998.

     David A. O'Neil is currently the Treasurer and Principal Financial Officer
     of the Company. Mr. O'Neil is a Certified Public Accountant who joined the
     Company as Controller and Assistant Treasurer on November 6, 1998. Prior to
     joining the Company, Mr. O'Neil was a Senior Manager at the accounting firm
     of KPMG LLP.

     John J. Pompay, Jr. for more than the past five years has been employed by
     the Company on a full-time basis as Vice President-Marketing and Sales
     since December 6, 1996.

     Timothy A. Polidore is currently the Assistant Treasurer of the Company.
     Mr. Polidore joined the Company on May 17, 1999. Prior to joining the
     Company he was Accounting Manager for Brinks, Inc.

     Garry M. Jones for more than the past five years has been employed by the
     Company on a full-time basis as Assistant Treasurer and Principal
     Accounting Officer since August 4, 1988.

     Directorships

     Howard Pinsley serves as a director of All American Semiconductor Inc.

     None of the other directors holds a directorship in any other company with
     a class of securities registered pursuant to Section 12 of the Exchange Act
     or subject to the requirements of Section 15 (d) of that Act or any company
     registered as an Investment company under the investment Company Act of
     1940.

     Legal Proceedings

     None of the directors or executive officers of the Company were involved
     during the past five years in any legal proceedings specified under Item
     401(f) of Regulation S-K.











Item 11. Executive Compensation

     The following table summarizes the annual compensation for each of the
     fiscal years ended June 30, 2003, 2002, and 2001 received by the Company's
     Chief Executive Officer and the other highest paid executive officers of
     the Company that received over $100,000 in total compensation as of June
     30, 2003.

                                       28

<PAGE>

<TABLE>
<CAPTION>

                           SUMMARY COMPENSATION TABLE

                                                                     Long Term
                                                                   Compensation
                                                                   ------------
                                                                    Securities
Name and                   Fiscal        Annual                     Underlying        All Other
Principal Position          Year         Salary         Bonus       Options(#)      Compensation(1)
------------------         ------        ------         ------     ------------     ---------------

<S>                          <C>          <C>           <C>              <C>          <C>
Howard Pinsley               2003         $180,404      $12,500          2,000        $ 19,109
President and                2002         $173,120      $25,000          2,000        $ 11,841
Chief Executive Officer      2001         $172,600      $25,000          2,000        $  9,590

John J. Pompay, Jr.          2003         $160,554      $25,000            800        $ 19,244
Vice President-Sales         2002         $154,340      $25,000            800        $ 12,134
                             2001         $152,938      $25,000            800        $  9,737

David A. O'Neil              2003         $105,490      $10,000            800        $ 10,738
Treasurer and Principal      2002         $ 99,950      $12,500            800        $  9,899
Financial Officer            2001         $ 91,200      $12,500            800        $  7,703

</TABLE>



     (1)  Represents (a) the cash and market value of the shares allocated for
          the respective fiscal years under the Company's ESOP to the extent to
          which each named executive officer is vested, and the Company's
          matching contribution under the 401K plan.




                        OPTION GRANTS IN LAST FISCAL YEAR

The following table sets forth information concerning the grant of stock options
to the named executive officers during the year ended on June 30, 2003.

<TABLE>
<CAPTION>

                                                                                                 Potential
                                                                                             Realizable Value
                                                                                                at Assumed
                            Number of        % of Total                                       Rates of Stock
                           Securities          Options                                      Price Appreciation
                           Underlying        Granted to      Exercise                       for Option Term (1)
                            Options         Employees in       Price        Expiration     ---------------------
Name                        Granted          Fiscal Year      ($/SH)           Date        5%($)           10%($)
----------------            --------         ----------       ------          -------      ------          ------

<S>                            <C>             <C>              <C>            <C>         <C>              <C>
Howard Pinsley                 2,000           13.5%            18.50          2013        60,269           95,968

John J. Pompay Jr.               800            5.4%            18.50          2013        24,107           38,387

David A. O'Neil                  800            5.4%            18.50          2013        24,107           38,387

</TABLE>

     (1)  Amounts reflect certain assumed rates of appreciation set forth in the
          Commission's executive compensation disclosure rules. Actual gains, if
          any, on stock option exercises will depend on future performance of
          the Common Stock. No assurance can be made that the amounts reflected
          in these columns will be achieved. The values in these columns assume
          that the fair market value on the date of grant of each option was
          equal to the exercise price thereof.
The following table sets forth information concerning unexercised options held
on June 30, 2003 by the named executive officers:

                                       29

<PAGE>

<TABLE>
<CAPTION>


     AGGREGATED OPTIONS AT FISCAL YEAR-END AND FISCAL YEAR-END OPTION VALUES


                              Number of Securities             Value of Unexercised
                             Underlying Unexercised                In-the-Money
                                 Options at                         Options at
                              Fiscal Year-End (#)               Fiscal Year-End ($)
Name                        Exercisable/Unexercisable        Exercisable/Unexercisable
-------------               -------------------------       --------------------------
<S>                                <C>                          <C>
Howard Pinsley                     2,000/4,000                        $0/$0

John J. Pompay Jr.                 1,400/1,600                   $10,680/$0

David A. O'Neil                      800/1,600                        $0/$0

</TABLE>



In accordance with the 2000 Stock Option Plan the above options have exercise
dates that range from March 1, 2002 through and expiring on March 1, 2013.

Insurance

The executive officers and directors of the Company can elect to be covered
under the Company sponsored health plans which do not discriminate in favor of
the officers or directors of the Company and which are available generally to
all employees. In addition, the executive officers are covered under a group
life plan, which does not discriminate, and is available to all employees.

The Company maintains insurance coverage, as authorized by Section 727 of the
New York Business Corporation Law, providing for (a) reimbursement of the
Company for payments it makes to indemnify officers and directors of the
Company, and (b) payment on behalf of officers and directors of the Company for
losses, costs and expenses incurred by them in any actions.

Employee Retirement Plan and Trust

Under the Company's ESOP, approved by the Board of Directors on June 2, 1989,
effective July 1, 1988, all non-union employees of the Company, including the
Company's executive and non-executive officers are eligible to participate. The
ESOP is a non-contributory plan which is designed to invest primarily in shares
of common stock of the Company. Certain technical amendments not considered
material were adopted effective as of June 30, 1994 and July 1, 2002.

Of the 230,562 shares of common stock of the Company allocated to participants
of the ESOP as of June 30, 2003, 9,984 shares were allocated to John J. Pompay
Jr., 9,502 shares were allocated to Howard Pinsley, 1,801 shares were allocated
to David A. O'Neil and 3,161 shares were allocated to Barry Pinsley.

                                       30

<PAGE>


Compensation of Directors

The Company's standard arrangement compensates each director of the Company an
annual fee in the amount of $12,000 for being a member of the Board of
Directors. Each Director that also serves as a member of the Audit Committee is
compensated an additional annual fee of $5,000. Each director that serves as a
member of the Succession Committee or the Mergers and Acquisition Committee is
compensated an additional $2,500 for each committee. These fees are paid monthly
to the Directors. Executive officers that also serve on the Company's Board of
Directors do not receive director's fees.

Directors are also eligible to receive stock options under the 2000 Stock Option
Plan at the discretion of the stock option committee. The stock option committee
consists of three appointed board members. For the year ended June 30, 2003 the
following options remain granted and unexercised by the Board of Directors in
accordance with this Plan.

Name                         Number of Options          Exercise Price Range
----                         -----------------          --------------------
Seymour Saslow                      1,500                   $17.95 - 19.85

Barry Pinsley                       2,200                    13.25 - 19.85

Michael W. Wool                     1,500                    17.95 - 19.85

William P. Greene                     900                    17.95 - 19.85

Paul J. Corr                        1,900                    13.25 - 19.85

Alvin O. Sabo                       1,600                    13.25 - 19.85

Carl Helmetag                       1,300                    13.25 - 19.85

Howard Pinsley                      6,000                    17.95 - 19.85

The above options have exercise dates ranging from March 1, 2002 and expiring on
March 1, 2013.

Employment Contracts and Termination of Employment

The Company has an employment contract with John J. Pompay Jr. in connection
with his duties as Vice President-Marketing and Sales. The contract was
effective as of January 1, 2003, and expires on December 31, 2003 unless the
parties mutually agree to extend the agreement. The contract provides for a
minimum base annual salary of $156,000 plus commissions at the rate of 3% on all
payments received by the Company against Mr. Pompay's open orders booked up to
and including December 31, 1996, and 1% on all payments received against orders
booked by the Company between January 1, 1997 and December 31, 1998. The
contract further provides that if Mr. Pompay's employment is terminated by the
Company prior to the expiration date, other than for cause, he will continue to
receive his full salary for 27 months and commissions due on his orders when
payment is received. The contract also provides for a restrictive covenant of
non-competition by Mr. Pompay for a period of two years upon termination for
cause or termination of the contract by Mr. Pompay. At the end of the contract
term Mr. Pompay has the option to accept at the time of his voluntary
resignation as an executive officer, an employment contract as a non-executive
officer in which he would receive full compensation for 13 weeks and then for
the next 143 weeks receive $1,000 per week for services rendered.

The Company entered into an agreement with Howard Pinsley, President and CEO
effective July 1, 2002. The contract allows Mr. Pinsley upon his resignation or
termination to become a non-executive officer of the Company for a period of
thirty-six months. In consideration for services to be provided by Mr. Pinsley
for the equivalent of two days a month after his resignation or termination, and
to perform duties as reasonably requested by the Company, he will receive full
benefits plus, $15,000 per month for the first three months, and $4,333 per
month for the next thirty-three consecutive months. This agreement expires on
December 31, 2005.

                                       31

<PAGE>


Item 12. Security Ownership of Certain Beneficial Owners and Management

Security Ownership of Certain Beneficial Owners

The following information is furnished as of August 29,2003 (unless otherwise
indicated) with respect to any person (including any "group" as that term is
used in Section 13(d)(3) of the Act) who is known to the Company to be the
beneficial owner of more than five percent of any class of the Company's voting
securities:
<TABLE>
<CAPTION>

                                                           Amount and
                                                           Nature of
Title            Name and Address                          Beneficial            Percent of
Class            of Beneficial Owner                       Ownership                Class
-----            -------------------                       ---------                -----

<S>                                                     <C>               <C>          <C>
Common Stock     Dimensional Fund                       73,100 - Direct   (1)          7.06%
                 Advisors Inc.
                 1299 Ocean Avenue
                 11th Floor
                 Santa Monica,
                 CA 90401

"                Franklin Advisory                      78,900 - Direct   (2)          7.60%
                 Services, LLC
                 777 Mariners Island Blvd
                 P.O. Box 7777 San Mateo, CA 94403-7777

"                The Adirondack Trust                   244,845 - Direct  (3)         24.24%
                 Company, as Trustee of
                 the Company's Employee
                 Retirement Plan and Trust
                 473 Broadway
                 Saratoga Springs,
                 NY 12866

"                Howard Pinsley                         43,634 - Direct                5.02%
                 233 Ballston Avenue                     9,502 - Indirect (4)
                 Saratoga Springs,
                 NY 12866
</TABLE>

(1)  The information as to the number of shares of common stock of the Company
     that may be deemed beneficially owned by advisory clients of Dimensional
     Fund Advisors Inc. ("Dimensional") is from the Schedule 13G dated December
     31, 2002 filed with the Securities and Exchange Commission (the "SEC").
     Dimensional, a registered investment advisor, is deemed to have beneficial
     ownership of 73,100 shares of Espey Mfg. & Electronics Corp. stock as of
     December 31, 2002, all of which shares are held in Dimensional investment
     companies, trusts and accounts. Dimensional, in its role as investment
     advisor and/or manager, disclaims beneficial ownership of all such shares.
     Dimensional, in its role as investment advisor and/or manager, reported
     sole voting power with respect to 73,100 shares.

(2)  The information as the number of shares of common stock of the Company that
     may be deemed beneficially owned by Franklin Advisory Services, LLC
     ("Franklin") is from the Schedule 13G, dated January 30, 2003 filed with
     the SEC. The Franklin statement indicated that Franklin's investment
     "advisory subsidiaries," have sole voting and dispositive power with
     respect to all of the shares of common stock shown in the table above for
     Franklin. The Franklin statement indicates that the common stock set forth
     in the table is beneficially owned by one or more open or closed-end
     investment companies or other managed accounts which are advised by direct
     and indirect Franklin investment advisory subsidiaries. The statement also
     indicated that it filed the Schedule 13G on behalf of itself and Franklin's
     principal shareholders, Charles B. Johnson and Rupert H. Johnson, Jr. (the
     "Principal Shareholders"), all of which are deemed beneficial owners of the
     shares of common stock shown in the above table for Franklin. Franklin and
     the Principal Shareholders disclaim any economic interest or beneficial
     ownership in any of the common stock shown in the table for Franklin.

(3)  This information is from the Form 4 dated August 22, 2003 filed with the
     SEC by the Trustee on behalf of the Company's ESOP. The ESOP Trustee has
     sole voting power with respect to unallocated common shares owned by the
     Trust, as directed by the ESOP Committee appointed by the Company's Board
     of Directors. As to the common shares allocated to participants, 223,833
     shares as of August, 22, 2003, the ESOP Trustee has the power to vote such

                                       32

<PAGE>

     shares as directed by such ESOP Committee to the extent the participants do
     not direct the manner in which such shares are to be voted.

(4)  This information is from Form 4 dated July 28, 2003. Indirect shares
     represent stock being held in the Company ESOP.


Security Ownership

The following information is furnished as of August 29, 2003 (unless otherwise
indicated), as to each class of equity securities of the Company beneficially
owned by all Directors and Executive Officers and by Directors and Executive
Officers of the Company as a Group:

<TABLE>
<CAPTION>

                                                      Amount and
                                                       Nature of
Title                    Name of                      Beneficial                Percent of
Class                Beneficial Owner                 Ownership                    Class
-----               -------------------               ----------                ----------
Common Stock

<C>                <C>                           <C>                              <C>
$.33-1/3 p.v.      Paul J. Corr                  3,000 - Direct                   *

        "          William P. Greene               100 - Direct                   *

        "          Carl Helmetag                 2,500 - Direct                   *
                                                   500 - Indirect (3)

        "          Gary M. Jones                 4,533 - Indirect (2)             *

        "          Peggy Murphy                  3,210 - Indirect (2)             *

        "          David A. O'Neil               1,600 - Direct                   *
                                                 1,801 - Indirect (2)

        "          Barry Pinsley                37,130 - Direct                   3.89%
                                                 3,161 - Indirect (1,2)

        "          Howard Pinsley               43,634 - Direct                   5.13%
                                                 9,502 - Indirect (2)

        "          Timothy A. Polidore             834 - Indirect (2)             *

        "          John J. Pompay, Jr.           9,984 - Indirect (2)             *

        "          Alvin O. Sabo                     0                            *

        "          Seymour Saslow                7,559 - Direct                   *

        "          Michael W. Wool                 100 - Direct                   *

        "          Officers and Directors       95,623 - Direct                  12.48%
                   as a Group (13 persons)      33,525 - Indirect (1,2,3)

</TABLE>

* Less than one percent

                                       33

<PAGE>


     (1)  Excludes 2,000 shares owned by the spouse of Barry Pinsley. Beneficial
          ownership of the shares is disclaimed by Mr. Pinsley

     (2)  Includes shares allocated to named director or officer as of June 30,
          2003 as a participant in the Company's ESOP. Each such person has the
          right to direct the manner in which such shares allocated to him or
          her are to be voted by the ESOP Trustee.

     (3)  Includes 500 shares owned by the trust of Molly K. Helmetag. As
          trustee of the trust, Mr. Helmetag is deemed beneficial owner, as
          defined in rule 13d-3, of the shares held by the trust. Excludes 806
          shares owned by the spouse of Mr. Helmetag. Beneficial ownership is
          disclaimed by Mr. Helmetag.

There are no arrangements known to the Company, the execution of which may at a
subsequent date, result in change of control of the Company.

During fiscal 2000, the Board of Directors and shareholders approved the 2000
Stock Option Plan (the Plan). Under the Plan, incentive and non-qualified stock
options will be granted to purchase shares of common stock of the Company. As of
June 30, 2002, the Plan was authorized to issue options to purchase 113,500
shares of the Company's common stock with a maximum of 15,000 shares in any one
year.

The Stock Option Committee of the Board of Directors administers the 2000 Plan.
The Committee may designate, from time to time, the individuals to whom awards
are made under the 2000 Plan, the amount of any such award and the price and
other terms and conditions of any such award. The Committee has the full and
exclusive power to interpret the 2000 Plan and may, subject to the provisions of
the 2000 Plan, establish the rules for its operation.

Item 13 Certain Relationships and Related Transactions

As previously reported, the Company established and sold to the ESOP Trust on
June 5, 1989, 331,224 shares of the Company's treasury stock at a price of
$26.50 per share, which purchase price was funded by the Company making a cash
contribution and loan. Each year, the Company makes contributions to the ESOP,
which are used to make loan interest and principal payments to the Company. With
each such payment, a portion of the common stock held by the ESOP is allocated
to participating employees. As of June 30, 2003, there were 230,562 shares
allocated to participants. The loan from the Company to the ESOP is repayable in
annual installments of $1,039,605, including interest, through June 30, 2004.
Officers of the Company, (including Howard Pinsley) who is also a director, are
eligible to participate in the ESOP and to have shares and cash allocated to
their accounts and distributed to them in accordance with the terms of the ESOP.

The Company paid the law firm of Langrock, Sperry & Wool, of which Michael W.
Wool, a director of the Company, is a partner, a total of $22,000 for legal
services during the fiscal year ended June 30, 2003.

Item 14 Principal Accountant Fees and Services

The information required by this item is included in "Independent Auditors" in
our Proxy Statement for our 2003 annual meeting of shareholders.

                                       34
<PAGE>




                                     PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K

          (a)  1. Financial Statements

                  Included in Part II, Item 8, of this report: Reports of
                          Independent Auditors

                          Balance Sheets at June 30, 2003 and 2002

                          Statements of Income for the years ended June 30,
                          2003, 2002 and 2001

                          Statements of Changes in Stockholders' Equity for the
                          years ended June 30, 2003, 2002 and 2001

                          Statements of Cash Flows for the years ended June 30,
                          2003, 2002 and 2001

                          Notes to Financial Statements

               2.   Financial Statement Schedules

                          Schedules are omitted because of the absence of
                          conditions under which they are required or because
                          the required information is given in the financial
                          statements or notes thereto.

               3.   Exhibits

                          11.1 Statement re: Computation of Per Share Earnings


                          31.1 Certification of the Chief Executive Officer
                               pursuant to Rules 13a-14(a) and 15d-14(a) under
                               the Securities Exchange Act of 1934, as adopted
                               pursuant to Section 302 of the Sarbanes-Oxley Act
                               of 2002

                          31.2 Certification of the Principal Financial Officer
                               pursuant to Rules 13a-14(a) and 15d-14(a) under
                               the Securities Exchange Act of 1934, as adopted
                               pursuant to Section 302 of the Sarbanes-Oxley Act
                               of 2002

                          32.1 Certification of the Chief Executive Officer
                               pursuant to 18 U.S.C. Section 1350, as adopted
                               pursuant to Section 906 of the Sarbanes-Oxley Act
                               of 2002

                          32.2 Certification of the Principal Financial Officer
                               pursuant to 18 U.S.C. Section 1350, as adopted
                               pursuant to Section 906 of the Sarbanes-Oxley Act
                               of 2002

                          99.1 Press Release dated August 22, 2003

          (b)  Reports on Form 8-K

               None
                                       35


<PAGE>


                               S I G N A T U R E S



     Pursuant to the requirements of Section 13 and 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.



                                                ESPEY MFG. & ELECTRONICS CORP.



                                                /s/Howard Pinsley
                                                --------------------------------
                                                Howard Pinsley
                                                President and
                                                Chief Executive Officer



/s/ Howard Pinsley                               President
--------------------------------------          (Chief Executive Officer)
Howard Pinsley                                  August 29, 2003

/s/ David A. O'Neil                             Treasurer
--------------------------------------          (Principal Financial Officer)
David A. O'Neil                                 August 29, 2003

/s/ Garry M. Jones                              Assistant Treasurer
--------------------------------------          (Principal Accounting Officer)
Garry M. Jones                                  August 29, 2003

/s/ Timothy A. Polidore                         Assistant Treasurer
--------------------------------------          (Principal Accounting Officer)
Timothy A. Polidore                             August 29, 2003

/s/ Barry Pinsley                               Director
--------------------------------------          August 29, 2003
Barry Pinsley

/s/ Seymour Saslow                              Director
--------------------------------------          August 29, 2003
Seymour Saslow

/s/ William P. Greene                           Director
--------------------------------------          August 29, 2003
William P. Greene

/s/ Michael W. Wool                             Director
--------------------------------------          August 29, 2003
Michael W. Wool

/s/ Paul J. Corr                                Director
--------------------------------------          August 29, 2003
Paul J. Corr

/a/ Alvin O. Sabo                               Director
--------------------------------------          August 29, 2003
Alvin O. Sabo

/s/ Carl Helmetag                               Director
--------------------------------------          August 29, 2003
Carl Helmetag


                                       36